Euro slips vs sterling as peripheral debt woes linger

By Anirban Nag

LONDON | Fri Mar 9, 2012 9:19am GMT

LONDON (Reuters) - Sterling rose against the euro on Friday as the single currency came under broad pressure, with investors speculating that other periphery countries like Portugal will restructure debt after Greece successfully closed its bond swap with private creditors.

Traders said this uncertainty is likely to spur more capital inflows to UK assets such as gilts from investors seeking to exit the euro zone, and could see the euro slip towards the 80 pence mark in the coming months.

The euro was down 0.3 percent against the pound at 83.60 pence, dropping for the first time after three straight sessions of gains.

It had risen to hit a peak of 83.99 pence on Thursday, its strongest in more than a week, when it stopped shy of reported offers just above 84 pence. But trade was slow with most investors cautious of initiating fresh positions ahead of U.S. jobs numbers later in the day.

There is some anticipation of a solid U.S. jobs report for February which could support riskier assets and currencies.

"U.S. non-farm days are usually quiet," said a London-based spot trader. He said the euro could earn a short term reprieve once the International Swaps and Derivatives Association rules on whether the debt deal will trigger a payout on credit default swaps used by some investors to insure their Greek bonds.

The Greek finance ministry said 85.8 percent of its 177 billion euros of Greek-law bonds had been voluntarily submitted for the swap and that it would use collective action clauses to force losses on hold-outs and boost participation to 95.7 percent.

ISDA officials will meet at 1300 GMT to judge if Greece's bond swap was a "credit event", triggering a payout on CDS contracts.

"Once that is out of the way, everyone will realise it's like putting a sticking plaster on a gaping wound ... Portugal, Spain will lurk in the background and it'll get sold off again," the trader added.

The euro, which has been sold into rallies due to the escalating euro zone debt crisis. was broadly lower, losing ground against the dollar and yen on Friday.

That also dragged sterling lower against the dollar, with the British pound down 0.1 percent lower at $1.5806. The pound had chart support at the 100-day average at $1.5710 and the 55-day average at $1.5670.

Traders will eye UK manufacturing and industrial production numbers for January, which could reinforce expectations that the first quarter may show a significant improvement over Q4 2011.

A positive surprise could support the British pound while a nasty number could dampen some of the optimism that recent UK data has generated.

Recent UK data has pointed to signs the UK economy may be starting to recover and skirt a recession, leading some investors to pare expectations the Bank of England will opt for further monetary easing.

"It is not all that gloom and doom in the UK," said Stuart Frost, head of Absolute Returns and Currency Fund at RWC Capital. "We expect cable to trade in the $1.57-$1.60 band, but the best way to express a slightly optimistic view is through the euro which we expect to ease towards 80 pence."

(Editing by Catherine Evans)

Source: http://uk.reuters.com/article/2012/03/09/uk-markets-sterling-open-idUKBRE8280EZ20120309?feedType=RSS&feedName=businessNews

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